Business, Financial Management, and Contracting Practices
Contracts, Costing, and Cash Flow
An HVAC business survives on three linked disciplines: an enforceable written contract, pricing that recovers every cost, and disciplined cash flow. Separate direct costs (labor, materials, equipment, permits, subcontractors) from indirect or overhead costs (rent, vehicles, insurance, licensing, tools, advertising, office salaries). Overhead must be embedded in every job price or the company looks busy while losing money. Know the difference between markup, added to cost, and margin, gross profit as a percentage of selling price; confusing the two is the most common exam trap in this domain.
A solid contract defines scope, price, payment schedule, change-order procedure, warranty, exclusions, and notice provisions. Change orders should be written and signed before work proceeds, because unwritten extras are the leading source of nonpayment disputes. Florida lien law (Chapter 713) protects unpaid contractors and suppliers, but only if deadlines are met: a Notice to Owner is generally required within 45 days of first furnishing labor or material, and a Claim of Lien within 90 days of last furnishing. Miss the deadline and the lien right usually disappears. Also understand retention, warranty callbacks as a cost of doing business, general liability and workers compensation coverage, and the difference between a service agreement and a construction contract.
Worked example: a job costs $8,000 in labor, material, and permits. To earn a 25 percent margin, divide by one minus the margin: $8,000 divided by 0.75 equals $10,667. Applying a 25 percent markup instead yields $10,000, quietly giving away $667 of profit. Rule of thumb: price equals cost divided by one minus target margin.